Congress Will Examine the Fed’s Actions During the Financial Crisis

In a rare moment of bipartisanship, the Senate voted 96 – 0 to attach a modified version of an amendment proposed by Sen. Bernard Sanders (I-VT) to the financial regulatory bill to investigate transparency in emergency lending practices by the Federal Reserve during the financial crisis. “This amendment begins the process of lifting the veil of secrecy of perhaps the most powerful federal agency,” Sanders said. The vote also is a nod to public frustration with the government’s Wall Street bailout.

President Barack Obama has asked Congress to enact reform legislation that will make capital markets less susceptible to crises. The Senate’s vote will clarify the Fed’s emergency lending practices during the crisis when it put hundreds of billions of dollars into the financial markets to stabilize the economy. The proposal marks the first time the Fed has been investigated this thoroughly by Congress.

The Senate wants to scrutinize the Fed’s role in the time leading up to and during the financial crisis to determine if there were any regulatory gaffes. Passage of the amendment allows a one-time audit of the Fed’s emergency lending since December 2007. Additionally, the Fed will have to publicly disclose detailed data about which financial institutions it has lent money to by December 1. Although the Fed initially was uneasy about the audit, its comfort level has now improved. According to Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, “I’m comfortable with the modified Sanders amendment.”